An energy giant could be set to create hundreds of jobs in the North East after a disagreement with the Scottish Government sparked unexpected benefits for the region.

Cluff Natural Resources had intended to create the UK’s first offshore underground coal gasification (UCG) plant under the Firth of Forth, but has abandoned the scheme after the Scottish Government imposed a freeze on the technology because of environmental concerns.

The company, which was last year granted UCG licences for two areas off the coast of County Durham , says it is now switching its attentions to the North East, where it says “considerable support exists for investment in energy and industry with a view to regeneration”.

Cluff - which was formed by North Sea pioneer Algy Cluff - is exploring the possibility of a site in the region, possibly taking advantage of the recent big job losses on Teesside which make that area ripe for investment.

The abandoned scheme in Scotland would have involved an investment of £250m and created 1,000 jobs, but the company believes a scheme in the North East could involve even more direct jobs, with thousands more in the supply chain.

Graham Swindells, Cluff’s finance director, said: “What we’re doing at the moment is assessing the political and investment appetite in the North East. We have licences there and in the Teesside area in particular we believe there is political will and support for investment given that the area has suffered a certain amount of job losses recently.”

Underground coal gasification is a hi-tech industrial process which converts coal into gas that can be used for power generation.

Supporters say the technique allows access to coal seams that are either unprofitable or impossible to extract using conventional methods.

Environmental campaigners have highlighted a number of concerns around the technique, and a petition against Cluff’s plans in Scotland influenced the Scottish Government’s decision to put the project there on hold.

But supporters - including Newcastle-based energy firm Five Quarters - say it is a cleaner way of extracint energy from coal reserves and lead to much lower CO2 emissions than traditional coal burning.

Five Quarters is also working on plans for UGC in the North Sea and hopes to create hundreds of jobs in Northumberland.

The firm is currently trying to attract investment to get their proposals off the ground.